Advertisements
In a recent announcement by the U.SBureau of Labor Statistics, the January Consumer Price Index (CPI) revealed a year-on-year increase of 3%. This figure surpasses expectations and marks the largest gain seen since June 2024, compared to a previous increase of 2.9%. On a month-to-month basis, January’s CPI also recorded a 0.5% rise, continuing a trend of acceleration for the seventh consecutive month, against a forecasted increase of 0.3% and a previous figure of 0.4%.
The core CPI, which excludes food and energy prices, posted a 3.3% increase year-over-year, up from the anticipated 3.1% and a previous figure of 3.2%. Month-over-month, the core CPI rose by 0.4%, compared to an expected 0.3% and a prior increase of 0.2%. This signals a notable rise that hasn't been seen since March 2024.
Following the release of this data, the volatility index (VIX) spiked to a weekly high of 17.11. The dollar index strengthened, while all three major U.S. stock indexes dipped, indicating a wave of panic selling in U.STreasury securities.
The CPI metrics serve as a critical reference for the Federal Reserve in determining when to potentially cut interest ratesCurrently, the market’s expectation for rate cuts has shifted from September to December 2025.
Later today, Federal Reserve Chairman Jerome Powell will continue his testimony before Congress, where in an earlier hearing he emphasized the Fed's stance of not rushing into rate cuts.
Unexpected Data Surpasses Projections
According to the Labor Department, housing costs persist as a significant factor contributing to inflation, increasing by 0.4% that month and accounting for approximately 30% of the total CPI increase.
When breaking down the inflation components, the indexes for meat, poultry, fish, and eggs have surged, with the egg index soaring by 15.2%. This represents the most significant hike in egg prices since June 2015, with approximately two-thirds of the domestic food price increases attributed to eggs, which have seen prices soar by 53% over the past year.
Bloomberg has highlighted that the so-called "supercore services gauge" saw a substantial increase of 0.76% in the last month, the largest since January of the previous year
Advertisements
While some economists might reference seasonal adjustments, this data suggests that the rise in average hourly wages reported in January is spilling over into service pricesThis trend poses a dilemma for the Federal Reserve, indicating that inflationary pressures may continue to rise, which in turn adversely affects consumers as escalating service costs drive up living expenses.
Interest Rate Cuts May Be Further Delayed
In the January meeting, the Federal Reserve opted for a cautious approach regarding further rate cuts.
During a Senate testimony on February 11, Chairman Powell indicated that premature or excessive rate cuts could hinder or even reverse the progress made in reducing inflationConversely, taking action too late or too mildly could weaken the economy and labor market. “Given our policy stance, which is much more restrictive than in the past, and with the economy remaining robust, we do not find it necessary to rush into policy adjustments," he stated.
The unexpectedly high CPI figures released today have again delayed market expectations for rate cuts.
David Kelly, Chief Global Strategist at JPMorgan, remarked that today’s data does not present any arguments for the Federal Reserve to lower interest rates.
Whitney Watson from Goldman Sachs Asset Management commented that the report could further solidify the Federal Reserve's caution regarding loosening monetary policiesThe resilience of the labor market also provides ample space for the Fed to maintain its patience
Advertisements
Advertisements
Advertisements
Advertisements
Leave a Reply